By Daniel Ball, director at Wax Digital
Quite encouragingly, late invoice payments to UK SMEs more than halved since 2012 thanks to the Payment Practices Reporting Regulations. The legislation invited suppliers to share their experiences and the impacts of late payments on their businesses.
Despite some success, according to the Federation of Small Businesses (FSB), payment delays are still a major cause of up to 50,000 small business closures each year. This has called for small business minister, Kelly Tolhurst to review the efficacy of the current measures to combat unfair payment practices.
There is almost £141 billion currently tied up in late payments, so it is not surprising that the Department for Business, Energy and Industrial Strategy (BEIS) has called for tougher measures to be put in place with hopes to free up capital. Further exposing the best and worst payment practices in the UK, the government is now requesting that businesses produce evidence of their responsible payment practices. This process started in October and late payers will be monitored under greater scrutiny by trade bodies, who have been granted more extensive audit rights.
This call for evidence grants government trade bodies the right to demand evidence of prompt payment practices from organisations who have been reported by dissatisfied suppliers. As a result, professionals in management positions will encounter additional workloads to comply, or companies will need to introduce a non-executive role to remedy unfair payment practices to avoid the penalties.
Reasons for late payments
Our own research into why late payments are an issue discovered they are frequently caused by poorly managed invoicing processes and surprisingly, it’s often larger businesses who are most guilty of this.
Large corporations who source from a vast pool of suppliers can struggle to keep up with invoicing practices without a proper process in place. This isn’t helped by the fact that suppliers are likely to have a different financial accounting period, use varying invoice formats and rely on manual processes.
It may be reassuring to know that many of the 200 medium to large-sized businesses that we surveyed do not take late payments lightly. In fact, many respondents in senior finance roles admitted to blacklisting frequent late payers. Bizarrely, the same respondents also admitted to repeated failures of meeting payment deadlines themselves!
Removing the likelihood for error
Automating the invoicing process can help speed up the time it takes to process an invoice and ensure that payment is not overlooked altogether.
Advocated by Tolhurst as a tool for change, innovative digital payment processing tools such as eInvoicing remove the need for manual, tasks such as invoice review, reconciliation with contract data and consideration of supplier payment deadlines.
By digitising tasks in invoice processing, staff can also vastly reduce the time spent deciphering incorrect invoices. Both supplier and customer benefit from the clear cost visibility that consistent invoice formatting offers.
Following the announcement of the government’s new measures in October, businesses should prepare to be subject to harsher punishments for late payments. Government bodies will now expect businesses to produce strict payment records on request or risk having to pay a fine. Digital invoicing processes can help ensure suppliers are paid on time, every single time – to avoid a financial penalty or a botched supplier relationship.
Don’t leave your relationships with your suppliers to chance.
